Need for Talent and Flexibility, Not Cost Savings, Drives Hiring Of Contingent Workers

AMA reports tight labor market and changing corporate structures are key factors

July 18, 2000—The use of contingent workers remains popular throughout the U.S. business community, but the rationale for this use has less to do with the bottom line than with the changing face of the labor and business markets, according to recent American Management Association research.

The study, conducted in cooperation with the Seton Hall University Institute on Work, in South Orange, NJ, shows that a vast majority (93%) of U.S. firms employ some type of contingent workers. Among these companies, the overwhelming rationale for the use of contingent workers rested on the need for talent and staffing flexibility. Seventy-three percent (73%) placed the need to attract "specialized talent" as either "very" or "somewhat important" rationales for their use of contingent workers. Ninety-one percent (91%) of companies surveyed cited "flexibility in staffing issues" in the same categories. Only 63% percent of respondent companies cited "payroll reduction" as "very" or "somewhat important."

The use of contingent workers by U.S. companies has grown since AMA last researched the issue in 1996. A near majority (49%) of surveyed firms employ more contingent workers today than in 1996. Twenty-three percent (23%) of companies employ the same amount, while only 20% employ fewer. Fifty-five percent (55%) of the largest businesses surveyed and a clear majority of service firms (56%) have increased the number of contingent workers on staff since 1996. Small businesses (44%) and manufacturing firms (42%) were less likely to have increased their number of contingent workers.

The significant pressures of a tight labor market may be a major reason for the prominence of locating and hiring "specialized talent" as a rationale for the use of contingent workers. AMA’s 1999 Staffing and Structure survey, performed at the same time and with a similar respondent universe as the contingent worker survey, reflected the perception of the labor market held by HR directors at U.S. companies. Sixty-six percent (66%) of those surveyed characterized the current availability of skilled manpower as "scarce."

"The correlation between these data suggest that, in a period of great demand for skilled employees, companies are looking at contingent workers as a solution to the problems of small applicant pools and greater recruiting challenges," stated Eric Rolfe Greenberg, director of management studies for AMA.

These conclusions are supported by an analysis of the sectors in which the growth of contingent worker use was highest. Among a variety of job sectors, those requiring skilled or specific competencies saw higher increases in contingent worker use than those that could be served by unskilled workers. Forty-five percent (45%) of surveyed companies reported a higher use of contingent workers in their information systems operations. Forty-two percent (42%) and 33% reported greater use in their manufacturing and finance and accounting operations, respectively. This compared to only 23% in maintenance and cleaning and 19% in transportation & distribution.

The changing view of management toward labor is another potential rationale for the upswing in contingent worker usage. According to the Staffing and Structure Survey, 36% of U.S. firms concurrently created new jobs and eliminated old ones in the 12 months ending in mid-year1999. The correlation between this figure and the 91% of respondents citing "flexibility" as the driving force behind the use of contingent workers suggests that as staffing issues become more fluid employers are looking to these workers to provide the flexibility necessary to move their businesses quickly. Cost necessarily becomes a secondary concern.

"We are seeing a clear reflection of the next wave in staffing issues," explained Barrie Peterson, associate director of Seton Hall’s Institute on Work. "Management is recalibrating its relationship with labor, and changing it from a fixed to a more flexible component as a means of meeting the demands of increasingly competitive and efficient markets. It is important to note, however, that in the category of "temporary workers" companies are experiencing twice as many unexpected problems as benefits."

Unionization seems to have little statistical effect on the use of contingent workers. Among companies with unionized workforces, contingent workers averaged 9.9% of the workforce, while in non-union workforces contingent workers constituted 11.1%.

"These surveys show us the importance of approaching staffing issues from a strategic viewpoint," commented Ellen Bayer, global practice leader for AMA. "As companies try harder and harder to reap efficiencies and competitive advantage from their organizational structures the sophisticated and strategic use of a variety of staffing solutions, from temporary workers and outsourcing, to full-time hires, will become essential. Companies should be schooled and ready to capitalize on the variety of options at their disposal."

For a complete summary of survey results please refer to AMA's research Web site at www.amanet.org/ research.

American Management Association is the world's leading membership-based management development organization. AMA offers a full range of business education and management development programs for individuals and organizations in Europe, the Americas and Asia. Through a variety of seminars and conferences, assessments, and customized learning solutions, publications and on-line resources, more than 700,000 AMA members and customers a year learn superior business skills and best management practices from a faculty of top practitioners. Those interested in program information or membership can visit AMA's Web site at www.amanet.org.